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Russia battles online foes and freedoms

Vladimir Putin has welcomed Russia&rsquo;s rise as a major global digital power. At home, though, he has kept a close watch on the IT companies and individuals who might stir up resistance against the government.

President Vladimir Putin lauded the Internet as "free and enormously democratic," but that was rhetoric. (YURI KADOBNOV / AFP)

By Benjamin BidderDer Spiegel

Sun., Aug. 26, 2012

LONDON—The reserved Russian businessman who recently moved his team into a loft in London’s Soho district, between the gay bars and esoterica stores, is driven by an ambitious goal: he wants to make his Internet startup the next Facebook, he says, “the next $100 billion company.”

Born Andrey Vagnerovich Ogandzhanyants in the Soviet Union in the mid-1970s, he now goes by the name Andrey Andreyev, which is easier for investors to pronounce. From his offices in London, Andreyev oversees Badoo, a growing online-dating and social-networking site.

Badoo has 157 million members globally, with around 100,000 more joining each day. The site is part social network, similar to Facebook, and part dating service, with both website and smartphone app employing GPS to locate nearby users interested in getting a drink, flirting or even starting an affair.

Singles use Badoo to search for love, unfaithful spouses seek adventure and prostitutes look for clients. Andreyev’s site serves as a nightclub, except that no one has to strip and dance on the bar to get attention here. Instead, users can pay to have their picture displayed to other users, a business model that has helped Badoo rake in $150 million in annual sales.

Andreyev is a good example of both the successes and problems faced by Russian Internet entrepreneurs, whose creativity and cool-headed pursuit of profit are stealing a share of the market away from American behemoths such as Google and Facebook — and doing so with the Kremlin’s blessing.

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Russian President Vladimir Putin, a former KGB agent, clearly enjoys seeing the same power dynamics play out in European cyberspace as once did in Europe itself during the Cold War. Market research shows that 16 of the 20 most popular websites in Europe are American, while the remaining four are Russian. Indeed, the IT boom is the Russian economy’s most notable success since the fall of the Iron Curtain.

Putin has welcomed Russia’s rise to become a major digital power. At home, though, he fears the role it plays fomenting resistance against his government. Within Russia, he keeps IT firms under the control of state-owned enterprises and a small circle of loyal oligarchs.

He also hastily implemented a controversial Internet law in early August that the Kremlin pushed through the Duma, Russia’s parliament, in mid-July. The law forces Internet providers to use web filters, an infrastructure that makes it possible to introduce a broad program of censorship.

It’s not all that surprising that people doing business in this environment tend to be cautious. Banker Alexander Mamut, said to be worth $2.1 billion and the owner of blogging platform Livejournal.com, avoids interviews as he is wary of political questions. Yuri Milner, a major investor in Facebook, prefers to talk about his overseas business deals rather than his Russian online empire, the Mail.ru Group, visited by around 70 per cent of all Russian Internet users.

Milner’s most important financial backer is Alisher Usmanov. As Russia’s wealthiest man, with a fortune worth $18 billion, he owes his wealth to business deals in the gas and steel industries, but also to his political connections. In 2006, with Putin’s blessing, Usmanov bought the newspaper publisher Kommersant, where he has been known to act in the Kremlin’s interest.

Yandex is the only comprehensive, global search index other than Google and Microsoft’s Bing. This made it all the more important for the Russian government to ensure its influence. Sberbank, the state-owned savings bank run by Putin’s former economic minister German Gref, holds a so-called “golden share” in Yandex, which gives it the right to block any sale of more than 25 per cent of the company.

Yandex has 3,500 employees, nearly twice as many as it had just two years ago. With a 60 per cent market share, the search engine is the market leader within Russia, outstripping Google. It hopes to show up the American giant elsewhere, as well. In Ukraine, for example, the Russian company has boosted its market share from 18 to 25 per cent.

In September 2011, the company expanded beyond the borders of the former Eastern Bloc for the first time. Yandex hopes to win away up to 20 per cent of Google’s market volume in Turkey by drawing users with new functions, such as a search feature for Koran verses and traffic alerts for chronically congested Istanbul.

Yandex makes $179 million in profit from $622 million in annual sales, roughly the same profit margin as the gas industry giant Gazprom, and the market is far from saturated. In the second quarter of 2012, profits saw a year-on-year growth of 76 per cent.

Last year, Russia overtook Germany as Europe’s largest Internet nation, with 70 million people from Kaliningrad to Vladivostok surfing the net.

During the parliamentary elections in December, the opposition posted videos online showing the Kremlin committing ballot box fraud. One clip — showing a representative of Election Commission No. 2501 filling out ballot after ballot himself — was viewed about 2 million times on YouTube.

Lawyer Alexei Navalny levelled online accusations of corruption against politicians and high-level government employees, calling Putin’s United Russia “a party of crooks and thieves.” Navalny struck a nerve and, despite ballot-rigging on a massive scale, United Russia lost 12 million voters and its overall support dipped below 50 per cent.

Putin’s party has been out for revenge ever since. In late July, access to Navalny’s website was blocked, supposedly by accident. Now the blogger must appear in court to defend himself against charges that he misappropriated public funds in 2009 while working as a governor’s adviser. If convicted, Navalny faces up to 10 years in prison.

The climate, both in Russia and online, has grown harsher since Putin took over the presidency from Dmitry Medvedev in May. As president, Medvedev liked to be photographed with an iPad, he kept a blog and he presented himself in his Sunday speeches as the Internet’s greatest protector.

As recently as December, Putin lauded the Internet as “free and enormously democratic.” But that was campaign rhetoric. The new Internet law allows authorities to block websites without a court order. The Kremlin officially says it wants to fight online child pornography. But the technology Russia’s Internet providers are now acquiring resembles what censors from China’s Communist Party use to block sites.

In few other countries are social networks as influential as in Russia. Russian users spend an average of 10 hours a month on such sites, nearly twice as much as the global average. Some hardliners call for shutting down Russia’s largest Facebook clone, VKontakte.ru, alleging it serves as a platform for child pornography. Security agencies dislike that the site allows Putin’s opponents to plan mass rallies. The Kremlin fears an Arab Spring scenario, when Facebook and Twitter became the demonstrators’ most important channels of communication.

VKontakte has nearly 110 million users throughout Eastern Europe — and a stubborn boss — Pavel Durov, 27. This winter, when the Federal Security Service (FSB), Russia’s domestic security agency, demanded that Durov shut down forums in which tens of thousands of Russians were arranging to meet for massive demonstrations against electoral fraud, he resisted publicly. “I don’t know where this will end,” he tweeted. “But we’re still standing.”

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